Hey, a beach!
Sand is a fairly common block, often found near water on new maps. Like gravel this block is affected by gravity and will fall to the lowest solid block in the z-coordinate it is placed in. In Indev, sand blocks can be used in a furnace to create glass.
In Indev mode, on a floating islands map you will occasionally find floating platforms of sand and/or gravel connecting the islands. However removing a floating sand/gravel block or adding a block to it causes all the sand to fall to the ground. This effect can be reproduced by placing sand on top of a Mine Cart as the bottom layer will not fall once the mine cart is removed.
Sand can be used in conjunction with torches to create self-sealing hallways; See Airlock
History
Sand was removed at revision 0.0.19a, but returned in version 0.0.20a. It was removed due to lack of room in the UI.
A glitch was present in Single Player for quite some time that caused water to flood from blocks affected by gravity if placed against a wall but not on the ground. The bug has since been fixed.